WASHINGTON, March 14, 2006 - Congress should resist repeating the mistakes of the past by punishing the oil and natural gas industry for a consolidation wave that was the result of economic pressures and regulatory requirements, the American Petroleum Institute (API) told Congress Tuesday.
In a statement submitted to the Senate Judiciary Committee, API noted that the industry mergers of the 1990s enabled companies to benefit from economies of scale, passing the savings on to consumers.
To continue to help the United States meet its energy challenges and supply affordable fuel for the American consumer, oil and natural gas companies need a level playing field to be able to compete with state-run energy giants in oil-rich nations that are shut to outside investors, API said.
“In attempting to meet the challenges we face, it is also important to do no harm. The worst thing Congress could do now would be to repeat the mistakes of the past by overriding the structures of the free marketplace,” the API said.
Slapping new taxes on the industry would be counterproductive at a time when the nation needs to produce more energy at home, API said. It called on the federal government to open more federal lands to drilling and streamline the permitting process for refining capacity expansions.
“Addressing the nation’s energy problems is an enormous long-term challenge. If we all do our part— industry providing energy products, government removing barriers and increasing access to supplies, and consumers using fuel more wisely— America will be able to sustain its economic growth,” the API said.
The rise in energy prices over the past year, in great part because of tight global supplies and steady demand growth, has placed renewed attention on industry consolidation and led to perceptions that oil and natural gas companies are reaping windfall profits.
But earnings should be put in perspective, API said, noting that they are “very much in line with other industries and often they are lower.” For the third quarter of 2005, the oil and natural gas industry earned 8.2 cents for every dollar of sales, compared to an average of 6.8 cents for all U.S. industry.
Over the last five years, the industry's earnings averaged 5.8 cents compared to an average of 5.5 cents for every dollar of sales for other industries. “The oil and natural gas industry is among the world's largest industries. Its revenues are large, but so are its costs of providing consumers with the energy they need,” API said.